WHAT IS PREDATORY LENDING?

Predatory lending is defined as a fast-growing practice in which financial institutions, banks, or mortgage lenders use extreme costs, high fees, and other dishonest and/or illegal lending practices to strip the equity from the homes of targeted groups. These groups often include the elderly and people of color in low-income communities of large cities in a lot of cases. Individuals that may have previously owned their homes free and clear could face possible foreclosure because of these lending practices.

One Example of predatory lending -- Ms. A. JONE'S STORY

A. Jones is a 69-year-old woman with a monthly income of less than $600 including the pay she earns as a part-time hairdresser. In September of 1997, Ms. Jones received a $15,000 home improvement loan for aluminum siding and new windows. Over the next year, her loan was flipped into several new loans, with exorbitant points and fees added to each. At the end of 1998, she found herself owing nearly $98,000 to the Associates First Capital (which has been widely criticized for its predatory lending practices) on the home that her great-grandfather had built and she had owned free and clear two years earlier. She's now at risk of losing her family home and faces constant foreclosure threats. Source:(Co-op America)

"Predatory lending" is not the same thing as "sub-prime lending." (Also known as B,C, & D "Paper") Sub-prime lenders focus on individuals who do not qualify for loans from traditional financial institutions. These lenders charge these "sub-prime" individuals more, but they do not engage in a number of abusive practices that define predatory lending. Generally, fair sub-prime lenders make loans that are appropriately priced to compensate for the risk of lending to credit-blemished borrowers.

If you are a first time homebuyer, have had a mortgage for many years, or own your home free and clear always be aware of predatory lending and the extreme damage it can have to you and your pocketbook or wallet.